Re: 2% trading strategy, can this be applied for crypto trading?

Quote from: figmentofmyass on September 25, 2018, 05:50:19 AM

Quote from: flying_bit on September 25, 2018, 04:00:33 AM

While browsing investopedia, I read about 2% rule where you will limit your loss to only 2% of your total capital.

Will this be applicable to crypto market? I always believe that you should wait for stock/crypto to gain atleast 20% to lock the profit but the 2% rule seems interesting.

Any insight? Anyone using this strategy?

the 2% rule means you don't risk more than 2% of your account on any one trade. if you have $100k, you don't risk more than $2k at a time. it's definitely applicable to crypto. it's a basic risk management strategy that hedges against variance.

even if your trading system is profitable, you could have a run of bad trades. if you trade 20% of your account at a time, you could blow up your account and lose your shirt after only a handful of trades. the 2% rule allows you to survive an unlucky run, and live to trade another day.

the opposite approach is the "all in on every trade" method that's so popular with crypto traders.

The 2% rule for large investments is a huge loss. This rule can only apply to small or not large amounts. Placing a low target with injuries will help reduce losses, but setting too high a target with profit will make the long-term migration time riskier.